It was just a matter of time before a New York/London mathematician got a hold of something that might actually work past the debt system breakdown.

BTW, you can bypass the internet, banks, and Wall Street and starve them of all money and fees and help out worthy creditors by loaning money directly to a person with integrity that you know and trust. You can charge them a reasonable interest rate, get income, no one ships fees to Wall Street, no one creates derivatives that blow up whole markets, and you hold the collateral. If they don’t pay you back….you get the collateral and/or you get to deduct it as a loss. And you know where they live.

This is how a relative of gg’s bought their first house in 1952 with a 15-year loan to an individual who held a lien against the house.

But you must find a person of integrity 🙂

And, for those you know without integrity….

Side musing: if you have a “friend” that you can’t stand and want to get rid of….loan them money. You may not see your money again, but you will never see them again.

Gifts: you can also just give money to people, up to $14,000 per year per person without a tax liability on either side. If you want to see your character and/or the character of another person, don’t lend them money, give them money.

Banks are claiming that it is because of the Frank-Dodd rules, which really are so thin now, that this argument just doesn’t hold water. In addition, what little worry banks had about actually being responsible for their depositors money just got voted out by the new spending bill tonight (December 11, 2014). So, gg thinks that the big banks are getting prepared. They are lowering the cash they may need to return to customers during a crisis and anything beyond their capacity to produce, they are putting on the government’s shoulders. Or someone to blame for lack of cash for depositors.

Although the stock market is going well. That’s about it. Oil is down putting major pressure on the US oil industry which is the only thing going well in the last 4 years. gg sees a major debt squeeze here if oil stays under $70 for the next 12 months. Debt has to be paid whether the oil well is running or not. Shutting down wells doesn’t pay off the bank, it just cuts payroll and hurts local economies.

Derivatives….the thing the big banks want the government to cover if (when) they blow up.

Derivatives, take your pick. Auto loans (maxed out), commodities (oil), stocks, government debt, Europe (still not fixed), China (slowing), emerging markets, and of course, currencies (very out of balance the last 8 months). Currencies are the largest derivative market. One or more can blow up at anytime and trigger a chain event. (Could be blowing up as we speak, but the chain reaction to multiple markets causes the crisis.) And the banks know that.

The good news is that since the government will cover any derivative losses for the banks, you will not lose money on deposit. May have to wait to withdraw it. (Money you can on get to, is not your money). Probably lose broker/invested money, it’s not covered. Groovygirl has suggested from the beginning to have investment funds with 2-3 different brokerage houses and then cash with 2-3 banks. That’s personal and business accounts. It’s extra accounting, but may reduce risk and at least have one account you can access immediately to keep things going in a crisis event.

Bad news is that the government will “print” to cover and you will be ultimately responsible for it through taxes, currency value, or perhaps even a brand new currency to restructure all the US debt.

This will not end well.

Make sure you are as protected as much as you can be. You can not control derivatives or government votes or market crisis, but you can control your money and finances.

I suggest to you that the next crisis will not be called a financial crisis. It will initially be labeled something else to keep people from assuming it is an event like 2007-2009 as long as possible. As this will cause everyone and anyone to “panic”. The time to prepare is yesterday, not tomorrow.

Tyler Durden via zerohedge had an excellent article this morning about the amazing winning percentages of HFT platforms. Apparently the big market for “winning” is currencies. Making fiat money on fiat money with the fastest computer. Fake money and fake traders. Welcome to the virtual world.

But the most interesting thing about this post is not that computers control HFT trading, that the fastest and closest computers always win, that these HFT fat fingers can take down a market in milliseconds, or that currency markets are the main trading market they use to do it.

The scary thing about this chart is that there is a losing side to the winning computer’s HFT bet. Those extraordinary profits were taken from someone’s capital, debt, or savings. And who is that losing side? This is a another angle of the biggest wealth transfer in history.

Side musing: gg thought this little item about Ukraine’s gold air-lifted to NYFed for “safe-keeping” was interesting. Click here. Maybe it is collateral for that billion dollar loan?

March 4, 2014

Click here for a very good article describing why city, county, and state pensions could be in trouble. derivative bets. Although this article about PIMCO and the recent departure of Mohamed El-Erianas, this article goes into detail about how derivative bets are putting pressure local and state balance sheets. The first thing to be “restructured” is pensions. When cities, counties, and states are in trouble, taxes go up and services go down, and maintenance items are put on the back burner.

This paragraph from the article was very interesting. Clearly shows what will implode PIMCO:

According to the publication of Morningstar Top Holdings snapshot, about three quarters of PIMCO derivatives were
bets on European currency financial futures and the balance was on U.S.
dollar futures. Some of PIMCO holdings have a “negative cash position”
that usually represents short selling — short sale being a speculative investment that profits when prices fall. The Total Fund portfolio looks similar to leveraged hedge fund portfolio. PIMCO
derivatives seem all about “maximum return” and not very much about
“preservation of capital and prudent investment management.”

Groovygirl believes that the combination of derivative bets (balance sheet problem now coming due) and lower tax revenue from falling property values (the housing market decline) and falling sales taxes from lower economic activity coupled with long-term maintenance aged-related expenses (income sheet problem) has brought these issues to the fore-front. Every city is in involved derivatives, it is how cities kept pension funds in the black at least on paper that they raided long ago. Cities can’t print money.

You can hide a balance sheet problem with more revenue. But when revenue falls or expenses increase your balance sheet problem becomes unavoidable. This is accounting 101, but no one in government seems care. Juggling accounting, not prudent governing, seems to be just doing business. “Hiding a poor balance sheet” is not a long term business plan.

Martin brings up a good point. When current political governments are overturned, debt payments may not get paid. New governments want to give cash to the people, not overseas bank creditors or internal corrupt government/systems.

Derivatives: “gone, but not forgotten”. Uh, no, that’s “forgotten, but not gone”. In fact, there are more than in 2007.

Click here for a taste of Paul Singer’s speech at Davos this week on the global derivative problem that we still haven’t dealt with. He will offer solutions. gg guesses Mr. Singer doesn’t know that they already have a solution for the next derivative-related contagion: bail in.

Click here for another legal case still going on between JPM and a German transport provider from the last crash.

If only Germany had some physical gold in their possession as a hedge during the next crash. Oh, yes, they asked for it back. gg wonders how that is going…. click here.

In the informational age, missing reporters and/or their computers always make gg’s ears perk up. It usually means that they ran into a major truth. gg is always interested in the real truth. Here is a US reporter who was writing about the US oil glut that has not been seen for 11 days. Click here. Read the article carefully to see the truth and what might happen in the near future, barring extended market manipulation.

Updates: gg just heard a radio interview in which it was suggested that the oil/energy glut, thus over-production/lowered prices, was going to/is creating more investment from businesses, jobs, and economic growth. That is not the truth, it is either dumb or a distraction. The truth is hidden in the link above. What is the truth? Why would lower energy prices not cause an increase in economic growth, but something else? Who might be upset about this? Should prices actually be lower, but aren’t? Think, search for the real. Perhaps Pam’s full article will help your search. Click here.

Here are some other articles to help with your research. These articles are not about Shell, it is about how oil companies (and all commodity companies) do business, make profits, and structure their debt. Who owns that debt? Through what investment vehicles do they own that debt? Click here and here and here. Does OPEC make money on oil production/sales or other investment vehicles?

Alongside the pull-back from some western banks, another emerging advantage for the oil majors is the capability to offer more competitive pricing. This is both through their ability to embed derivatives in the physical supply deals they will have with firms in such industries as shipping and also through the fact they aren’t required to add on a credit valuation cost.

“What has happened over the past couple of years is that banks have been pricing in CVA [credit valuation adjustment] for counterparty risk. Oil majors typically do not price in CVA, which in some cases makes them more competitive,” says Standard Chartered’s Koh.

Richard Ng, a Singapore-based venture capitalist with Kind Resources and former co-head of global commodities marketing at UBS, points out that for corporates, embedding derivatives in physical deals avoids mark-to-market losses.

Dodd-Frank has moved commodity derivatives away from US banks and transparency. Derivative contracts (especially losses) may not appear on oil company balance sheets. It also makes market manipulation of the underlying asset very inviting to those with that influence.

This post is in gg’s humble opinion, she is not an energy market expert by any means.

Groovygirl looks at the spread between the real inflation rate, right now running around 8.5%, and the rates you can earn at the bank. Those are currently running better than recent months around 2%. Whoo-hoo! This gives a good idea about how far behind real people are falling. Someone living off of investments alone would have a hard time finding a consistant 8.5% return after taxes. (Maybe real estate cash flow) If you compare a business/company’s annual gain and the real inflation stats, it will give you a quick look to see if they are falling behind too. Business annual reports are more complicated, but it directs you to which businesses to investigate further. You can do this with tax revenue for states, counties, and cities, etc. If they are not bringing in at least 8.5% more, then they have to cut somewhere at some point.

Easy money and credit have hidden these truths since the dollar began to really fall in 2001. Once liquidity evaporates for good, it is all over. We have experienced liquidity evaporating twice in the last decade and numerous examples from other countries in the last 5 years. We know what happens. It should not be a surprise when it happens again and you have no excuse not to be prepared.

Chart of the Day is an updated inflation-adjusted DOW chart. We keep hitting that resistance level. Click here.

Groovygirl knows that everyone is excited about the stock market and “new highs”, but this chart of the day shows:

A clear winter cycle since around 2000 or the dot.com bust

A firm resistance level at around $15,000 (inflation-adjusted)

After taxes, you may have not made back your losses, even if you entered the market perfectly timed. Taxes are very important to consider in these times.

There were major swings in the stock market during the Great Depression as well. This is not unusual.

We are really in the middle of the long-term trading channel. We could go up, we could go down…..

The recent drops in this winter cycle were driven by bubbles popping and terrorist events. (dot.com pop, 9-11, and housing bubble pop) During a winter cycle, the market is very sensitive to outside forces. Confidence is easily and quickly lost and then regained. This is why buy and hold is not a good long-term strategy during a winter cycle. Groovygirl is not saying that you can’t make money during a winter cycle, it just isn’t the best time for a buy and hold pattern.